Accounting / Accountancy
The American Accounting Association (AAA) defines accounting as the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.
In Britain, the practice of accounting is usually called accountancy.
The term financial accounting usually means providing information to those outside the entity (such as stockholders, regulatory organizations, and creditors). A primary focus in financial accounting is the preparation and publishing, quarterly and annually, of the income statement, balance sheet, statement of changes in financial position, and statement of retained earnings. In this regard, financial accounting primarily looks primarily backwards in time, reporting financial history.
The primary data for the financial accountant come from the bookkeeper's journal and ledgers. Transactions are entered in the journal chronologically, that is, in the order they occur. If the company uses double entry bookkeeping (as most companies do), each transaction will in fact result in two entries, a debit to one account and an equal, offsetting credit to another account. Journal entries are transferred to ledgers, where accounts are organized by account type (the list of accounts and thier organization begins with the company's chart of accounts). In preparing financial statement reports, the accountant begins with the period-ending balance in each account.
By contrast, the term managerial accounting (also called management accounting or cost accounting) refers to this information prepared for those inside the entity. The practice of managerial accounting may be concerned with
- Preparing capital and operating budgets, administering the budget process, and reporting (internally) performance against budgets.
- Evaluating the performance of managers and business units against other business plans and benchmarks
- Analyzing and reporting on financial problems and business situations.
In these capacities, managerial accounts look both forwards and backwards in time.
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